There was no positive result over the weekend between Greece and its international creditors as negotiations deteriorated. The news that Greece will hold a referendum on a new austerity programme on Sunday July 5th means that the IMF will now not be paid the €1.5bn due on June 30th. Whilst not technically a default it will mean that Greece will be in arrears with the IMF. However, yesterday’s ECB’s governing council meeting is reported to have capped ELA funding support to Greek banks at €89bn, which has grown rapidly in recent weeks as deposits have flowed out of the country. To curb the outflow, Greek banks will now be shut from this morning until at least July 6th as capital controls are introduced. Daily cash withdrawals will be limited to €60, according to measures announced at 03.00 on Monday morning. The Athens stock exchange was closed yesterday.

There has been a limited impact on the Irish economy the Irish bond market was broadly flat on the day. Core European bonds gained as safe haven flows pushed 10-year German bund yields down 13 basis points to 0.79%. However share prices in Irish banks suffered heavy losses – Bank of Ireland was down 5.5% and PTSB 2.95%, not significantly worse than the 4.0% fall in the E600 banks index.
Tax Revenues in Q1 of 2015 have surpassed expectation, with government deficit set to fall below 2% of GDP this year. Irish government debt now looks set to fall below 100% of nominal GDP by 2017.

Global equities rose as markets saw some positive light regarding the Greek debt situation; however, the start of this week will see further volatility as the end-game approaches. Euro currency weakness has significantly enhanced returns for eurozone investors in 2015. Equities continue to be supported by the low interest rate environment. In addition, equities remain better value relative to other asset classes despite the rise in price earnings multiples and bond yields.
The global index rose by 1.9% last week giving a total return year-to-date of a plus 14.1%. Technically, despite the rise, the Index remained just below its 50-day moving average but is still almost 8% above the critical 200-day moving average. There was a mixed bag of returns from the major equity markets in local currency terms last week ranging from plus 4.4% in Europe to minus 0.9% in Australia.

Eurozone bond prices fell back (-0.5%) last week and are now down by 2.5% year-to-date. Bonds have been hurt recently by comments from ECB president Mario Draghi that ‘we should get used to periods of higher volatility’
Irish 10-year bond yield increased to 1.66 percent in June up from 1.30 percent in May. German 10-year bond yield rose marginally in May from 0.37% to 0.49%. The yield hit an intramonth high of 0.70% before being supported by the QE front-loading story. Equivalent US rates rose from 2.03% to 2.21%. Bonds are seeing a significant pick-up in volatility.
The Federal Reserve is now expected to keep interest rates at record low levels until December 2015, with a small chance of a rate rise in September. The Bank of England is not expected to move until early 2016. ECB rates are unlikely to move upwards for the foreseeable future.

Commodities & Currencies
• Commodity prices overall were down by 2.7% (in dollar terms) in May, following the previous month’s sharp rise on the back of higher oil prices. Commodities are down 3% so far this year.
• The gold price was virtually flat on the month, ending at $1,189 per troy ounce.
• The euro currency was mixed against the major currencies during May – weaker against the US dollar, sterling and the Swiss franc but stronger against the Japanese yen and the Aussie dollar. The €/$ rate moved from 1.12 to 1.10 over the month. As of this morning it was 1.11

Looking forward, the U.S. economy continues to grow despite a soft patch of data in the first quarter. Off a very weak base, Europe has begun to post better than expected economic results while in Japan, the risks are to the downside as economic releases continue to disappoint. The ECB bond purchasing program is scheduled to continue through September 2016 which could be beneficial for European equities. The Bank of Japan is also engaged in its own quantitative easing program and is now the largest owner of equities in Japan.
In Europe, monetary policy alone may not be enough to fix the long term structural issues in the region, but in the medium term, The belief is that equities in Europe will do well. Greece will continue to add drama to the region as she negotiates her way out of debt or out of the eurozone. Hopefully there will be some resolution on this issue over the coming weeks which should settle some of the recent volatility.